What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-05-31 compared with 2022-06-21 · 101 added, 136 removed, 310 unchanged (43% of the section changed)

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and its consolidated subsidiaries.

As disclosed in Note 19, “ Correction of Prior Period Errors ” to our consolidated financial statements, the Company’s consolidated financial statements as of and for the fiscal year ended March 31, 2021, have been revised to give effect to the correction of certain accounting errors identified during the current fiscal year-end financial reporting process.

As a result, the Management’s Discussion and Analysis of the Company’s Financial Condition and Results of Operations set forth below has been revised to give effect to the correction of these errors.

We are a holding company that conducts substantially all of our business operations through Reservoir Media Management, Inc.

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Operations of the Recorded Music segment involve the acquisition of sound recording catalogs as well as the discovery and development of recording artists and the marketing, distribution, sale and licensing of the music catalogs.

This management’s discussion and analysis of financial condition and results of operations is organized as follows:

● Business Overview ––This section provides a general description of our business, as well as a discussion of factors that we believe are important in understanding our results of operations and comparability and in anticipating future trends.

● Results of Operations ––This section provides an analysis of our consolidated and operating segment results of operations for the fiscal years ended March 31, 2022 and March 31, 2021.

● Liquidity and Capital Resources ––This section provides an analysis of our cash flows for the fiscal years ended March 31, 2022 and March 31, 2021, as well as a discussion of our liquidity and capital resources as of March 31, 2022.

The discussion of our liquidity and capital resources includes recent debt financings and a summary of the key debt covenant compliance measures under our debt agreement.

● Critical Accounting Policies ––This section identifies those accounting policies that are considered important to our results of operations and financial condition, require significant judgement and/or involve significant management estimates.

Our significant accounting policies, including those considered to be critical accounting policies, are summarized in Note 2, “ Significant Accounting Policies ” to our consolidated financial statements as of March 31, 2022 and for the fiscal years ended March 31, 2022 and 2021 .

Our fiscal year ends on March 31.

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In return for promoting, placing, marketing and administering the creative output of a songwriter or engaging in those activities for other rightsholders, our Music Publishing business garners a share of the revenues generated from use of the musical compositions.

The operations of our Music Publishing business are conducted principally through RMM, our global music publishing company headquartered in New York City, with operations in multiple countries through various subsidiaries, affiliates and non-affiliated licensees and sub-publishers.

We own or control rights to more than 150,000 musical compositions, including numerous pop hits, American standards, folk songs and motion picture and theatrical compositions.

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Music Publishing revenues are derived from five main sources:

● Digital ––the rightsholder receives revenues with respect to musical compositions embodied in recordings distributed in streaming services, download services and other digital music services;

● Performance ––the rightsholder receives revenues if the musical composition is performed publicly through broadcast of music on television, radio and cable and in retail locations ( e.g.

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, arena concerts and nightclubs), and performance of music in staged theatrical productions;

● Digital ––the rightsholder receives revenues with respect to musical compositions embodied in recordings distributed in streaming services, download services and other digital music services;

● Mechanical ––the rightsholder receives revenues with respect to musical compositions embodied in recordings sold in any machine-readable format or configuration such as vinyl, CDs and DVDs;

● Synchronization ––the rightsholder receives revenues for the right to use the musical composition in combination with visual images such as in films or television programs, television commercials and video games;

● Mechanical ––the rightsholder receives revenues with respect to musical compositions embodied in recordings sold in any machine-readable format or configuration such as vinyl, CDs and DVDs;

● Other ––the rightsholder receives revenues for use in sheet music and other uses.

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We also own income participation interests in recordings by The Isley Brothers, The Commodores, Wisin and Yandel, Alabama and Travis Tritt, and an interest in the Loud Records catalog containing recordings by the Wu-Tang Clan.

Our core Catalog includes recordings under the Chrysalis Records label by artists such as Sinéad O’Connor, The Specials, Generation X and The Waterboys, as well as recordings under the Tommy Boy record label by artists such as De La Soul, Coolio, House of Pain, Naughty By Nature and Queen Latifah.

Our core Catalog includes recordings under the Chrysalis Records label by artists such as Sinéad O’Connor, The Specials, Generation X and The Waterboys, and De La Soul, as well as recordings under the Tommy Boy record label by artists such as House of Pain, Naughty By Nature, and Queen Latifah.

Our Current Artist and Catalog recorded music distribution is handled by a network of distribution partners.

Chrysalis Records Catalog releases are distributed through AWAL while our Chrysalis Records Current Artist releases are distributed through PIAS.

Tommy Boy Music Catalog releases are distributed via our membership with MERLIN, AMPED and other partners.

Chrysalis Records current frontline releases are distributed through Secretly Distribution, with prior frontline releases distributed via PIAS.

Chrysalis Records and Tommy Boy catalogues are distributed via our agreements with MERLIN, AMPED, Proper and other partners.

Through our distribution network, our music is being sold in physical retail outlets as well as in physical form to online physical retailers, such as amazon.com, and distributed in digital form to an expanding universe of digital partners, including streaming services such as Amazon, Apple, Deezer, SoundCloud, Spotify, Tencent Music Entertainment Group and YouTube, radio services such as iHeart Radio and SiriusXM, and download services.

We also license music digitally to fitness platforms such as Apple Fitness+, Equinox, Hydrow and Peloton and social media outlets, such as Facebook, Instagram, Snapchat, TikTok and Triller.

We also license music digitally to fitness platforms such as Apple Fitness+, Equinox, Hydrow and Peloton and social media outlets, such as Facebook, Instagram, TikTok and Snap.

Recorded Music revenues are derived from four main sources:

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● Physical ––the rightsholder receives revenues with respect to sales of physical products such as vinyl, CDs and DVDs;

● Synchronization ––the rightsholder receives royalties or fees for the right to use sound recordings in combination with visual images such as in films or television programs, television commercials and video games;

● Neighboring Rights –– the rightsholder also receives royalties if sound recordings are performed publicly through broadcast of music on television, radio, and cable, and in public spaces such as shops, workplaces, restaurants, bars and clubs;

The principal costs associated with our Recorded Music business are as follows:

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Business Combination

On July 28, 2021 (the “ Closing Date ”), we consummated the previously announced business combination (the “ Business Combination ”) by and among Roth CH Acquisition II Co., a Delaware corporation (“ ROCC ”), Roth CH II Merger Sub Corp., a Delaware corporation and a wholly-owned subsidiary of ROCC (“ Merger Sub ”) and Reservoir Holdings, Inc., a Delaware corporation (“ RHI ”).

On the Closing Date, Merger Sub merged with and into RHI, with RHI surviving as a wholly-owned subsidiary of ROCC (the “ Business Combination ”).

In connection with the consummation of the Business Combination, “Roth CH Acquisition II Co.” was renamed “Reservoir Media, Inc.” effective as of the Closing Date.

Our common stock, $0.0001 par value per share (the “ Common Stock ”) and warrants are traded on The Nasdaq Stock Market LLC (“ NASDAQ ”) under the ticker symbols “RSVR” and “RSVRW,” respectively.

On July 28, 2021 (the “ Closing Date ”), we consummated a business combination (the “ Business Combination ”) between Roth CH Acquisition II Co.

(“ ROCC ”), Roth CH II Merger Sub Corp., a wholly-owned subsidiary of ROCC, and Reservoir Holdings, Inc.

In connection with the consummation of the Business Combination, “Roth CH Acquisition II Co.” was renamed “Reservoir Media, Inc.” Our common stock, $0.0001 par value per share (the “ Common Stock ”) and warrants are traded on The Nasdaq Stock Market LLC (“ NASDAQ ”) under the ticker symbols “RSVR” and “RSVRW,” respectively.

The Business Combination was accounted for as a reverse capitalization.

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COVID-19 Pandemic

In January 2020, a new strain of coronavirus, COVID-19, was identified in Wuhan, China.

In March 2020, the World Health Organization declared a global pandemic.

The global pandemic and governmental responses thereto have disrupted physical and manufacturing supply chains and required the closures of physical retailers.

The COVID-19 pandemic that emerged in 2020 has disrupted physical and manufacturing supply chains and required the closures of physical retailers.

Additionally, stay-at-home orders, limited indoor and outdoor gatherings and other restrictions have negatively affected our business in other ways, such as, making it impossible to hold live concert tours, delaying the release of new recordings and disrupting the production and release of motion pictures and television programs.

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We have also invested in our operations to create a platform for the Music Publishing and Recorded Music segments to scale and grow.

The most significant acquisitions of size during Fiscal 2022 and Fiscal 2021 were as follows:

● On June 2, 2021, we acquired, through a membership interest purchase agreement, Tommy Boy Music, LLC (“ Tommy Boy ”), a 40-year-old record label, which included a diverse catalog of primarily recorded music rights and some music publishing rights (the “ Tommy Boy Acquisition ”).

● On April 13, 2020, we acquired, through an asset purchase agreement, all of the music assets of three entities doing business as Shapiro, Bernstein & Co., a century old U.S.

music publishing company, which included a diverse catalog of primarily music publishing rights and some ancillary rights.

The investment also included the acquisition, through a share purchase agreement, of Shapiro, Bernstein & Co.

Limited, a U.K.

company, which enabled us to take advantage of its at-source network of collections across Europe.

We did not complete any individually significant acquisition transactions during Fiscal 2023.

On June 2, 2021, we acquired, through a membership interest purchase agreement, Tommy Boy Music, LLC (“ Tommy Boy ”), a 40-year-old record label, which included a diverse catalog of primarily recorded music rights and some music publishing rights.

Use of Non-GAAP Financial Measures

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Interest expense

Gain (loss) on foreign exchange

Loss on early extinguishment of debt

Gain on foreign exchange

Gain on fair value of swaps

Interest and other income

Other income (expense), net

Income before income taxes

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Net income attributable to Reservoir Media, Inc.

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Our revenues were composed of the following amounts (in thousands):

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Total Music Publishing

Synchronization

Neighboring rights

Synchronization

Total Recorded Music

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Total Revenue

Total revenues increased by $27,595 thousand, or 34%, during Fiscal 2022 compared to Fiscal 2021, driven by a 17% increase in Music Publishing revenue and a 126% increase in Recorded Music revenue.

Total revenues increased by $14,446 thousand, or 13%, during Fiscal 2023 compared to Fiscal 2022, driven by an 18% increase in Recorded Music revenue, a 9% increase in Music Publishing revenue and a 188% increase in Other revenue related to the Company’s artist management business, reflecting strong touring and merchandise revenue in a post-COVID environment.

Music Publishing revenues represented 69% and 71% of total revenues for Fiscal 2023 and Fiscal 2022, respectively.

Recorded Music revenues represented 28% and 27% of total revenues for Fiscal 2023 and Fiscal 2022, respectively.

Other revenue represented 3% and 1% of total revenues for Fiscal 2023 and Fiscal 2022, respectively.

and international revenues represented 59% and 41%, respectively of total revenues for Fiscal 2023.

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The shift in mix between Music Publishing and Recorded Music and the shift in geographic mix are both primarily attributable to the Tommy Boy Acquisition.

Additionally, the shift in geographic mix is partly the result of an updated estimate of U.S.

mechanical royalties related to the recent CRB ruling and an unfavorable impact on Chrysalis revenue from the change in the GBP to U.S.

dollar exchange rate.

Total digital revenues increased by $11,262 thousand, or 20%, during Fiscal 2023 compared to Fiscal 2022.

Total digital revenues represented 52% of consolidated revenues for Fiscal 2022 and Fiscal 2021.

Total digital revenues represented 55% and 52% of consolidated revenues for Fiscal 2023 and Fiscal 2022, respectively.

Music Publishing revenues increased by $6,763 thousand, or 9%, during Fiscal 2023 compared to Fiscal 2022.

This increase in Music Publishing revenue was mainly driven by acquisitions of catalogs and revenue from the existing catalog, which led to increases

in synchronization revenue, mechanical revenue and digital revenue.

Additionally, other revenues increased, driven primarily by the launch of a rights management subsidiary in the Middle East.

These increases were partially offset by a decrease in performance revenue.

This increase in Music Publishing revenue was mainly driven by acquisitions of catalogs and revenue from the existing catalog, which led to increases in digital revenue, synchronization revenue, mechanical revenue and performance revenue.

These increases were partially offset by a decrease in other revenue, reflecting the nonrecurrence of revenues recognized in the prior year from Dubai Expo.

On a geographic basis, U.S.

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International Music Publishing revenues represented 40% of total Music Publishing revenues for Fiscal 2023 compared to 48% for Fiscal 2022.

The shift in geographic mix is primarily the result of an updated estimate of U.S.

mechanical royalties related to the recent CRB ruling, as well as an increase in U.S.

synchronization revenue.

Recorded Music revenues increased by $5,314 thousand, or 18%, during Fiscal 2023 compared Fiscal 2022.

This increase in Recorded Music revenue was driven in part by the acquisition of Tommy Boy in June 2021, which contributed $10,799 thousand to Recorded Music revenue during Fiscal 2022.

This increase in Recorded Music revenue was driven in part by the acquisition of Tommy Boy in June 2021, which contributed $15,165 to Recorded Music revenue during Fiscal 2023 compared to $10,799 thousand during Fiscal 2022.

Digital revenue increased by $4,563 thousand primarily due to the acquisition of Tommy Boy and due to the continued growth at music streaming services.

Increases in physical revenue and neighboring rights revenue were also primarily due to the acquisition of Tommy Boy.

The $2,182 thousand increase in synchronization revenue was primarily due to the acquisition of Tommy Boy and the recovery in the film and television industry from the impacts of the COVID-19 pandemic.

Increases in neighboring rights and synchronization revenue were also primarily due to the acquisition of Tommy Boy.

The $364 thousand decrease in physical revenue primarily reflects the more significant release schedule in Fiscal 2022 than Fiscal 2023.

On a geographic basis, U.S.

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International Recorded Music revenues represented 45% of total Recorded Music revenues for Fiscal 2023 compared to 46% for Fiscal 2022.

This shift in Recorded Music geographic mix was driven primarily by the acquisition of Tommy Boy.

Cost of Revenues

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Cost of revenues increased by $3,800 thousand, or 9%, during Fiscal 2023 compared Fiscal 2022.

Cost of revenues as a percentage of revenues was 41% for Fiscal 2022 and Fiscal 2021, reflecting a small margin decrease for Music Publishing, as described below, which was offset by an increase in the relative weight of Recorded Music as a percentage of total revenue and an increase in Other revenue.

Cost of revenues as a percentage of revenues decreased to 39% for Fiscal 2023 compared to 41% for Fiscal 2022, reflecting a small margin increase for Recorded Music, as discussed below, and an increase in Other revenue.

Writer royalties and other publishing costs for the Music Publishing segment increased by $3,057 thousand, or 9%, during Fiscal 2023 compared Fiscal 2022.

Writer royalties and other publishing costs as a percentage of Music Publishing revenues increased to 46% for Fiscal 2022 from 44% for Fiscal 2021.

The decrease in margins was due to the change in the mix of earnings by type and songwriting clients with their specific contractual royalty rates being applied to the revenues.

Writer royalties and other publishing costs as a percentage of Music Publishing revenues were 46% for Fiscal 2023 and Fiscal 2022.

Artist royalties and other recorded music costs for the Recorded Music segment increased by $743 thousand, or 9%, during Fiscal 2023 compared to Fiscal 2022.

This increase was due primarily to increased revenue from the acquisition of Tommy Boy.

Artist royalties and other recorded music costs as a percentage of Recorded Music revenues was 30% for Fiscal 2022 and Fiscal 2021.

Artist royalties and other recorded music costs as a percentage of Recorded Music revenues decreased to 27% for Fiscal 2023 compared to 30% for Fiscal 2022.

The increase in margins was due primarily to a decrease in physical revenue, which carries a higher cost of revenue than other revenue types.

Additionally, margins were affected by a change in the general mix of earnings by type and artists with their specific contractual royalty rates being applied to the revenues.

Amortization and Depreciation

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Amortization and depreciation expense increased by $3,053 thousand, or 16%, during Fiscal 2023 compared to Fiscal 2022, driven by increases in both the Music Publishing and Recorded Music segments.

Music Publishing amortization and depreciation expense increased by $2,020, or 17%, during Fiscal 2022 compared to Fiscal 2021, primarily due to the acquisition of additional music catalogs.

Recorded Music amortization and depreciation increased by $2,933, or 132%, during Fiscal 2022 compared to Fiscal 2021, primarily due to Tommy Boy.

Music Publishing amortization and depreciation expense increased by $2,752 thousand, or 20%, during Fiscal 2023 compared to Fiscal 2022, primarily due to the acquisition of additional music catalogs.

Recorded Music amortization and depreciation increased by $308 thousand, or 6%, during Fiscal 2023 compared to Fiscal 2022, primarily due to the acquisition of Tommy Boy.

Administration Expenses

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Total administration expenses

Total administration expenses increased by $10,293 thousand, or 69%, during Fiscal 2022 compared to Fiscal 2021, reflecting increases in both the Music Publishing and Recorded Music segments.

Expressed as a percentage of revenues, administration expenses increased to 23% for Fiscal 2022 from 19% for Fiscal 2021, due to administration expenses associated with being a public company, an increase in share-based compensation expense and increased costs related to establishing a U.S.

Total administration expenses increased by $5,889 thousand, or 23%, during Fiscal 2023 compared to Fiscal 2022, reflecting increases in both the Music Publishing and Recorded Music segments, as well as an increase in Other administration expenses.

Expressed as a percentage of revenues, administration expenses increased to 25% for Fiscal 2023 from 23% for Fiscal 2022, due to increased administration expenses associated with being a public company for a full year, an increase in share-based compensation expense and increased costs related to establishing a U.S.

Recorded Music platform due to the acquisition of Tommy Boy.

Music Publishing administration expenses increased by $2,992 thousand, or 18%, during Fiscal 2023 compared to Fiscal 2022.

Expressed as a percentage of revenues, Music Publishing administration expenses increased to 22% for Fiscal 2022 from 15% for Fiscal 2021, driven primarily by new administration expenses associated with being a public company and increased costs related to acquisitions.

Expressed as a percentage of revenues, Music Publishing administration expenses increased to 24% for Fiscal 2023 from 22% for Fiscal 2022, driven primarily by increased administration expenses associated with being a public company for a full year and an increase in share-based compensation expense.

Recorded Music administration expenses increased by $1,160 thousand, or 16%, during Fiscal 2023 compared to Fiscal 2022, primarily due to increases at Chrysalis Records and the acquisition of Tommy Boy.

Expressed as a percentage of revenue, Recorded Music administration expenses decreased to 25% for Fiscal 2022 from 32% for Fiscal 2021, primarily due to taking advantage of operating leverage on the Recorded Music platform, partially offset by new administration expenses associated with being a public company.

Expressed as a percentage of revenue, Recorded Music administration expenses decreased to 24% for Fiscal 2023 from 25% for Fiscal 2022, primarily due to taking advantage of operating leverage on the Recorded Music platform, partially offset by increased administration expenses associated with being a public company for a full year.

Other administration expenses increased by $1,737 thousand, or 188%, during Fiscal 2023 compared to Fiscal 2022, primarily due to selling expenses associated with our artist management business.

Interest Expense

Interest expense increased by $3,885 thousand, or 36% during Fiscal 2023 compared to Fiscal 2022.

This increase was primarily driven by increased debt balances due to use of funds in catalog and business acquisitions and writer signings, partially offset by lower interest rates due to a decline in LIBOR rates as well as the result of refinancing transactions, the impact of which was in turn partially offset by interest rate swap hedges.

Our credit agreement provides for the transition from LIBOR as the index rate to SOFR once LIBOR is discontinued.

We do not expect a negative impact on interest expense as a result of the transition..

Gain (Loss) on Foreign Exchange

Gain on foreign exchange was $331 thousand for Fiscal 2022 compared to a loss on foreign exchange of $911 thousand for Fiscal 2021.

This increase was driven by increased debt balances due to the use of funds in catalog acquisitions and writer signings and increases in LIBOR/SOFR.

In connection with the Second Amendment of the RMM Credit Agreement on December 16, 2022, the indexed interest rate in the RMM Credit Agreement was modified from LIBOR to SOFR effective on the amendment date.

Loss on Early Extinguishment of Debt

In connection with the Second Amendment of the RMM Credit Agreement in December 2022, the Company recorded a loss on early extinguishment of debt of $914 thousand, which reflects the write-off of a portion of unamortized debt issuance costs.

Gain on Foreign Exchange

Gain on foreign exchange was $269 thousand for Fiscal 2023 compared to $331 thousand for Fiscal 2022.

This change was due to fluctuations in the two foreign currencies we are directly exposed to, namely British pound sterling and euro.

Gain on Fair Value of Swaps

Gain on fair value of swaps increased by $5,570 thousand during Fiscal 2022 compared to Fiscal 2021.

This change was due to a rising forward yield curve for LIBOR and the marking to market of our interest rate swap hedges.

Gain on fair value of swaps decreased by $5,793 thousand during Fiscal 2023 compared to Fiscal 2022.

This change was due to the marking to market of our interest rate swap hedges.

Income Tax Expense

Income tax expense increased by $2,107 thousand, or 98%, during Fiscal 2022 compared to Fiscal 2021.

Income tax expense increased to $5,625 thousand during Fiscal 2023 compared to $4,253 thousand during Fiscal 2022.

The effective income tax rate during Fiscal 2023 was 66.9% compared to 24.5% during Fiscal 2022.

The increase in the effective income tax rate was driven primarily by changes in the mix of income from multiple tax jurisdictions.

Net income increased by $3,829 thousand, or 41%, during Fiscal 2022 compared to Fiscal 2021, driven primarily by a $5,570 increase in gain on fair value of swaps, a $1,241 thousand increase in gain on foreign exchange and a $1,025 thousand increase in operating income as a result of company growth, partially offset by costs of being a public company.

These factors were partially offset by a $1,899 thousand increase in interest expense and $2,107 increase in income tax expense.

The increase in income tax expense during Fiscal 2023 was driven primarily by incremental tax expense of $3,659 thousand due to the increase in the value of deferred tax liabilities arising from a change in estimate of the applicable tax rate used to measure our international deferred tax liabilities in the United Kingdom, which increased our effective tax rate by 39.0%.

The increase in the effective income tax rate also reflects changes in the mix of income from multiple tax jurisdictions.

Net income decreased by $10,349 thousand, or 79%, during Fiscal 2023 compared to Fiscal 2022, driven primarily by a $5,793 thousand decrease in gain on fair value of swaps, a $3,885 thousand increase in interest expense, a $1,372 thousand increase in income tax expense and a $914 thousand loss on early extinguishment of debt in Fiscal 2023.

These factors were partially offset by a $1,705 thousand increase in operating income.

Non-GAAP Reconciliations

We use certain financial information, such as OIBDA, OIBDA Margin, EBITDA, Adjusted EBITDA and Pro Forma Adjusted EBITDA, which are non-GAAP financial measures, which means they have not been prepared in accordance with U.S.

We use certain financial information, such as OIBDA, OIBDA Margin, EBITDA and Adjusted EBITDA, which are non-GAAP financial measures, which means they have not been prepared in accordance with U.S.

Reservoir’s management uses these non-GAAP financial measures to evaluate our operations, measure its performance and make strategic decisions.

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Reconciliations of OIBDA to operating income and EBITDA and Adjusted EBITDA to net income are provided below.

We consider operating income (loss) before non-cash depreciation of tangible assets and non-cash amortization of intangible assets (“ OIBDA ”) to be an important indicator of the operational strengths and performance of our businesses and believe this non-GAAP financial measure provides useful information to investors because it removes the significant impact of amortization from our results of operations and represents our measure of segment income.

However, a limitation of the use of OIBDA as a performance measure is that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues in our businesses and other non-operating income (loss).

We consider operating income before non-cash depreciation of tangible assets and non-cash amortization of intangible assets (“ OIBDA ”) to be an important indicator of the operational strengths and performance of our businesses and believe this non-GAAP financial measure provides useful information to investors because it removes the significant impact of amortization from our results of operations and represents our measure of segment income.

Accordingly, OIBDA should be considered in addition to, not as a substitute for, operating income, net income attributable to us and other measures of financial performance reported in accordance with GAAP.

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EBITDA is defined as earnings (net income or loss) before net interest expense, income tax (benefit) expense, non-cash depreciation of tangible assets and non-cash amortization of intangible assets and is used by management to measure operating performance of the business.

Adjusted EBITDA is defined as EBITDA further adjusted to exclude items or expenses such as, among others, (1) any non-cash charges (including any impairment charges), (2) any net gain or loss on foreign exchange, (3) any net gain or loss resulting from interest rate swaps, (4) equity-based compensation expense and (5) certain unusual or non-recurring items.

Adjusted EBITDA is defined as EBITDA further adjusted to exclude items or expenses such as, among others, (1) any non-cash charges (including any impairment charges and loss on early extinguishment of debt), (2) any net gain or loss on foreign exchange, (3) any net gain or loss resulting from interest rate swaps, (4) equity-based compensation expense and (5) certain unusual or non-recurring items.

Adjusted EBITDA is a key measure used by our management to understand and evaluate operating performance, generate future operating plans and make strategic decisions regarding the allocation of capital.

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In addition, Adjusted EBITDA is not the same as net income or cash flow provided by operating activities as those terms are defined by GAAP and does not necessarily indicate whether cash flows will be sufficient to fund cash needs.

Pro Forma Adjusted EBITDA is defined as Adjusted EBITDA plus the pro forma EBITDA of assets acquired in the previous four quarters representing the earnings of those assets for the portion of the prior four quarters before the Company’s acquisition of such assets.

This is the measurement defined in the Company’s credit agreement.

The Company believes that including the supplemental adjustments that are made to calculate Pro Forma Adjusted EBITDA provides additional information to investors about the Company’s ability to comply with its financial covenants as well as providing meaningful information about the historic earnings of acquired assets.

Pro Forma Adjusted EBITDA is not defined by GAAP.

Pro Forma Adjusted EBITDA is not a measure of financial condition, liquidity or profitability, and should not be considered as an alternative to net income determined in accordance with GAAP or operating cash flows determined in accordance with GAAP.

Additionally, Pro Forma Adjusted EBITDA is not intended to be a measure of free cash flow for management’s discretionary use, as it does not take into account certain items such as interest and principal payments on our indebtedness, depreciation and amortization expense (because the Company uses capital assets, depreciation and amortization expense is a necessary element of our costs and ability to generate revenue), working capital needs, tax payments (because the payment of taxes is part of our operations, it is a necessary element of our costs and ability to operate), non-recurring expenses and capital expenditures.

Reconciliation of Operating Income to OIBDA

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Amortization and depreciation expenses

Consolidated OIBDA increased by $5,970 thousand, or 18%, during Fiscal 2022 compared to Fiscal 2021, driven by a 170% increase in Recorded Music OIBDA, partially offset by a 9% decrease in Music Publishing OIBDA.

Expressed as a percentage of revenue, OIBDA Margin decreased to 36% for Fiscal 2022 from 40% for Fiscal 2021, primarily because of increased overhead associated with being a public company and increased costs related to acquisitions.

Music Publishing OIBDA decreased $2,528 thousand, or 9%, during Fiscal 2022 compared to Fiscal 2021.

Consolidated OIBDA increased by $4,758 thousand, or 12%, during Fiscal 2023 compared to Fiscal 2022, driven by a 25% increase in Recorded Music OIBDA.

Additionally, Other OIBDA related to the Company’s artist management business increased by $632 thousand during Fiscal 2023 compared to Fiscal 2022, driven by strong touring and merchandise revenue.

Expressed as a percentage of revenue, OIBDA Margin decreased to 35% for Fiscal 2023 from 36% for Fiscal 2022, primarily because of increased administration expenses associated with being a public company for a full year, an increase in share-based compensation expense and increased costs related to acquisitions, partially offset by revenue growth.

Music Publishing OIBDA increased by $713 thousand, or 3%, during Fiscal 2023 compared to Fiscal 2022.

Expressed as a percentage of revenue, Music Publishing OIBDA Margin decreased to 30% in Fiscal 2023 from 32% in Fiscal 2022.

The decreases in Music Publishing OIBDA and OIBDA Margin reflect increases in administration expenses associated with being a public company and writers’ royalties and other publishing costs as a percentage of revenue, partially offset by revenue growth.

Recorded Music OIBDA increased $8,532 thousand, or 170% during Fiscal 2022 compared to Fiscal 2021.

The decreases in Music Publishing OIBDA and OIBDA Margin reflect increased administration expenses associated with being a public company for a full year, partially offset by revenue growth.

Recorded Music OIBDA increased by $3,411 thousand, or 25% during Fiscal 2023 compared to Fiscal 2022.

Expressed as a percentage of revenue, Recorded Music OIBDA Margin increased to 49% during Fiscal 2023 from 46% in Fiscal 2022.

These increases reflect increases at Chrysalis Records and the acquisition of Tommy Boy and improved operating leverage on the Recorded Music platform as a result of growth.

These increases reflect increases at Chrysalis Records and the acquisition of Tommy Boy, improved operating leverage on the Recorded Music platform as a result of growth and a decrease in physical revenue, which carries a higher cost of revenue than other revenue types, partially offset by increased administration expenses associated with being a public company for a full year.

Reconciliation of Net Income to EBITDA and Adjusted EBITDA

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Amortization and depreciation

(Gain) loss on foreign exchange (a)

Gain on fair value of swaps (b)

Non-cash share-based compensation (c)

Interest and other income

Benefit of forgiven PPP loan (d)

Loss on early extinguishment of debt (a)

Gain on foreign exchange (b)

Gain on fair value of swaps (c)

Non-cash share-based compensation (d)

Other income (expense), net

Adjusted EBITDA

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(a) Reflects the loss or (gain) on foreign exchange fluctuations.

(b) Reflects the non-cash gain on the mark-to-market of interest rate swaps.

(a) Reflects the loss on a portion of unamortized debt issuance costs in connection with the Second Amendment to the RMM Credit Agreement.

(b) Reflects the gain on foreign exchange fluctuations.

(d) Reflects non-cash stock-based compensation expense related to the Reservoir Media, Inc.

2021 Omnibus Incentive Plan.

(d) Reflects loan forgiveness for the entire amount borrowed under the Paycheck Protection Program.

Consolidated Adjusted EBITDA increased by $9,373 thousand, or 29%, during Fiscal 2022 compared to Fiscal 2021, driven primarily by an increase in revenue, partially offset by increases in cost of revenue and administration expenses, including administration expenses associated with being a public company.

Consolidated Adjusted EBITDA increased by $5,071 thousand, or 12%, during Fiscal 2023 compared to Fiscal 2022, driven primarily by an increase in revenue, partially offset by increases in cost of revenue and administration expenses, including increased administration expenses associated with being a public company for a full year.

Adjusted EBITDA Margin was 38% for Fiscal 2023 and Fiscal 2022, which is the net result of improved operating leverage offset by twelve months of public company costs in Fiscal 2023 with only eight months of public company costs in Fiscal 2022.

Liquidity and Capital Resources

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Cash provided by operating activities was $31,204 thousand for Fiscal 2023 compared to $12,479 thousand for Fiscal 2022.

The primary driver of the $2,236 thousand decrease in cash provided by operating activities during Fiscal 2022 as compared to Fiscal 2021 was an increase in cash used for working capital, primarily used for royalty advances (net of recoupments), partially offset by higher earnings.

The primary driver of the $18,725 thousand increase in cash provided by operating activities during Fiscal 2023 as compared to Fiscal 2022 was a decrease in net cash used for working capital, primarily related to royalty advances (net of recoupments), accounts receivable and the timing of payments of accounts payable and accrued liabilities.

Investing Activities

Cash used in investing activities was $72,231 thousand for Fiscal 2023 compared to $196,823 thousand for Fiscal 2022.

The increase in cash used in investing activities was primarily due to increased acquisitions of music catalogs, including Tommy Boy.

The decrease in cash used in investing activities was primarily due to decreased acquisitions of music catalogs compared to Fiscal 2022, which included the acquisition of Tommy Boy on June 2, 2021 for approximately $100 million.

Financing Activities

Cash provided by financing activities was $38,462 thousand for Fiscal 2023 compared to $196,534 thousand for Fiscal 2022.

The increased cash provided by financing activities in Fiscal 2022 reflects the proceeds from the Business Combination and PIPE Investment and an increase in net borrowings used for investing activities, primarily acquisitions of catalogs, partially offset by the payment of financing costs.

The decrease in cash provided by financing activities in Fiscal 2023 primarily reflects the Business Combination and PIPE Investment that occurred in Fiscal 2022.

Our primary sources of liquidity are the cash flows generated from our subsidiaries’ operations, available cash and cash equivalents and funds available for drawing under our Senior Credit Facility (as described below).

These sources of liquidity are needed to fund our debt service requirements, working capital requirements, strategic acquisitions and investments, capital expenditures and other investing and financing activities we may elect to make in the future.

During the Fiscal 2021, we borrowed $617 thousand (the “ PPP Loan ”) under the Paycheck Protection Program (the “ PPP ”).

The PPP, established as part of the Coronavirus Aid, Relief and Economic Security Act of 2020, as amended (the “ CARES Act ”), provided for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business.

The loans and accrued interest are forgivable after as long as the borrower uses the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels.

In accordance with the terms of the PPP, we applied for and received confirmation of loan forgiveness for the entire amount borrowed under the PPP.

We believe that our primary sources of liquidity will be sufficient to support our existing operations over the next twelve months.

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The First Amendment amended the RMM Credit Agreement to increase RMM’s senior secured revolving credit facility from $248,750 thousand to an aggregate amount of $350,000 thousand (the “ Senior Credit Facility ”).

The Senior Credit Facility matures on October 16, 2024, and Borrowings under the Senior Credit Facility bear interest at a rate equal to either the sum of a base rate plus a margin of 1.25% or the sum of a LIBO rate plus a margin of 2.25%.

On December 16, 2022, RMM entered into an amendment (the “ Second Amendment ”) to the RMM Credit Agreement.

The Second Amendment amended the RMM Credit Agreement to (i) increase RMM’s senior secured revolving credit facility from $350,000 thousand to $450,000 thousand, (ii) increase the incremental borrowing available under the facility’s accordion feature from $50,000 thousand to $150,000 thousand , (iii) extend the maturity date of the loans advanced under the RMM Credit Agreement from October 16, 2024 to December 16, 2027, (iv) modify the interest rate to be equal to either the sum of a base rate plus a margin of 1.00% or the sum of a SOFR rate plus a margin of 2.00%, in each case subject to a 0.25% increase based on a consolidated net senior debt to library value ratio, (v) remove the existing total leverage ratio financial covenant of no greater than 7.50:1.00 (net of up to $20,000 thousand of certain cash balances) as of the end of each fiscal quarter, (vi) reduce the minimum required fixed charge coverage ratio financial covenant to 1.10:1.00 and (vii) modify the consolidated senior debt to library value ratio financial covenant to 0.450, subject to certain adjustments.

In connection with the Second Amendment, RMM recorded a loss on early extinguishment of debt of approximately $914 thousand that reflects the write-off of a portion of unamortized previous debt issuance costs and capitalized approximately $3,500 thousand in new debt issuance costs.

RMM is also required to pay an unused fee in respect of unused commitments under the Senior Credit Facility, if any, at a rate of 0.25% per annum.

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Covenant Compliance

The Senior Credit Facility contains financial covenants that requires us, on a consolidated basis with our subsidiaries, to maintain, (i) a total leverage ratio of no greater than 7.50:1.00 (net of up to $20,000 thousand of certain cash balances) as of the end of each fiscal quarter, (ii) a fixed charge coverage ratio of not less than 1.25:1.00 for each four fiscal quarter period, and (iii) a consolidated senior debt to library value ratio of no greater than 0.475:1.00, subject to certain adjustments.

RMM’s ability to borrow funds under the Senior Credit Facility may depend upon its ability to meet the leverage ratio test at the end of a fiscal quarter to the extent it has outstanding debt.

The leverage ratio test is based on trailing twelve month (“ TTM ”) Pro Forma Adjusted EBITDA, which is defined in the Senior Credit Facility as Adjusted EBITDA plus the pro forma EBITDA of assets acquired in the previous four quarters representing the earnings of those assets for the portion of the prior four quarters before the Company’s acquisition of such assets.

As of March 31, 2022

the Company’s leverage ratio was 5.7x.

The calculations of Pro forma Adjusted EBITDA in accordance with the Senior Credit Facility is as follows for the trailing twelve months ended March 31, 2022:

Income tax expense

Interest expense

Amortization and depreciation

(Gain) loss on foreign exchange (a)

Gain on fair value of swaps (b)

Non-cash share-based compensation (c)

Interest and other income

Adjusted EBITDA

Pro forma EBITDA on acquisitions (d)

Pro forma Adjusted EBITDA

(a) Reflects the loss or (gain) on foreign exchange fluctuations.

(b) Reflects the non-cash gain on the mark-to-market of interest rate swaps.

2021 Omnibus Incentive Plan.

(d) Reflects the pro forma EBITDA on acquisitions for the portion of the prior twelve months that are not included in the Company’s financial results.

Non-compliance with the leverage ratio, fixed charge coverage ratio and consolidated senior debt to library value ratio could result in the lenders, subject to customary cure rights, requiring the immediate payment of all amounts outstanding under the Senior Credit Facility, which could have a material adverse effect on our business, cash flows, financial condition and results of operations.

As of March 31, 2022, we were in compliance with each of the financial covenants under the Senior Credit Facility.

The Senior Credit Facility contains financial covenants that requires us, on a consolidated basis with our subsidiaries, to maintain, (i) a fixed charge coverage ratio of not less than 1.10:1.00 for each four fiscal quarter period, and (iii) a consolidated senior debt to library value ratio of no greater than 0.45:1.00, subject to certain adjustments.

Non-compliance with the fixed charge coverage ratio and consolidated senior debt to library value ratio could result in the lenders, subject to customary cure rights, requiring the immediate payment of all amounts outstanding under the Senior Credit Facility, which could have a material adverse effect on our business, cash flows, financial condition and results of operations.

As of March 31, 2023, with a fixed charge coverage ratio of 4.2x and a consolidated senior debt to library value ratio less than 34.2%, we were in compliance with both of the financial covenants under the Senior Credit Facility.

Interest Rate Swaps

At March 31, 2022, RMM had the following interest rate swaps outstanding, under which it pays a fixed rate and receives a floating interest payment from the counterparty based on LIBOR with reference to notional amounts adjusted to match the original scheduled principal repayments pursuant to the indenture agreement:

At March 31, 2023, RMM had the following interest rate swaps outstanding, under which it pays a fixed rate and receives a floating interest payment from the counterparty based on SOFR with reference to notional amounts adjusted to match the original scheduled principal repayments pursuant to the indenture agreement:

Effective Date

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September 2024

On March 10, 2022, two previous interest rate swaps expired with original notional amounts of $40,228,152 and $59,325,388.

Through the expiration date of these previous interest rate swaps, RMM paid fixed rates of 2.812% and 2.972%, respectively, to the counterparty and received a floating interest payment from the counterparty based on LIBOR with reference to notional amounts adjusted to match the original scheduled principal repayments pursuant to the indenture agreement.

On March 10, 2022, two previous interest rate swaps expired with original notional amounts of $40,228 thousand and $59,325 thousand.

Those interest rate swaps were replaced by two new swaps with original notional amounts of $88,090 thousand and $8,875 thousand which add to a third interest rate swap with an original notional amount of $53,030 thousand.

All three current interest rate swaps mature on September 30, 2024, and RMM pays fixed rates of 1.533%, 1.422% and 0.972%, respectively, to the counterparty and received a floating interest payment from the counterparty based on SOFR with reference to notional amounts adjusted to match the original scheduled principal repayments pursuant to the indenture agreement.

In April 2023, the Company added an additional interest rate swap in the amount of $100 million.

This swap has an effective date of September 30, 2024, which coincides with the expiration of the Company’s existing swaps, and a maturity date of December 16, 2027, which corresponds to the maturity date of the loans advanced under the RMM Credit Agreement.

The Company will pay a fixed rate of 2.946% and receive a floating interest from the counterparty based on SOFR with reference to notional amounts adjusted to match the original scheduled principal repayments pursuant to the indenture agreement.

Our ability to pay dividends is restricted by covenants in the Senior Credit Facility.

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We and our affiliates continue to evaluate opportunities to, from time to time, depending on market conditions and prices, contractual restrictions, our financial liquidity and other factors, seek to pay dividends or prepay outstanding debt or repurchase or retire our outstanding debt.

The amounts involved in any such transactions, individually or in the aggregate, may be material and may be funded from available cash or from additional borrowings or equity raises.

The amounts involved in any such transactions, individually or in the aggregate, may be material and may be funded

from available cash or from additional borrowings or equity raises.

In addition, from time to time, depending on market conditions and prices, contractual restrictions, our financial liquidity, and other factors, we may seek to refinance the Senior Credit Facility with existing cash and/or with funds provided from additional borrowings.

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The following is a description of our firmly committed contractual obligations as of March 31, 2023:

(1) Interest obligations under the Credit Facility are presented in consideration of 1.0% as a substitute for LIBOR, plus 2.25%.

(1) Interest obligations under the Credit Facility are presented in consideration of 5.00% as a substitute for SOFR, plus 2.00%.

These obligations have been presented based on the principal amounts due as of March 31, 2023.

Amounts do not include any unamortized deferred financing costs.

(2) Operating lease obligations primarily relate to the minimum lease rental obligations for our real estate in various locations around the world.

Operating lease obligations exclude a total commitment of approximately $8.4 million for a new corporate headquarter office entered into in April 2022 (See Note 20 Subsequent Event to our Consolidated Financial Statements), which is payable monthly with escalating rental payments over the 130-month lease term.

The lease term is estimated to commence during the Company’s third or fourth quarter of the fiscal year ending March 31, 2023.

(3) The Company routinely enters into long-term commitments with recording artists and songwriters for the future delivery of music.

Such commitments generally become due only upon delivery or release and Reservoir’s acceptance of albums from the artists or future musical compositions by songwriters and publishers.

Based on contractual obligations, and management’s estimate of aggregate firm commitments to such talent approximates $4,163 thousand as of March 31, 2022.

The aggregate firm commitments expected for the next twelve-month period based on contractual obligations and expected release schedule approximates $2,913 thousand as of March 31, 2022.

(2) The Company routinely enters into long-term commitments with songwriters and recording artists for the future delivery of music.

Such commitments generally become due only upon delivery or release and Reservoir’s acceptance of future musical compositions by songwriters and publishers or albums from the artists.

Because the timing of payment, and even whether payment occurs, is dependent upon the timing of delivery of albums and musical compositions, the timing and amount of payment of these commitments as presented in the above summary can vary significantly.

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If it is determined that events and circumstances warrant a revision to the remaining period of amortization, an asset’s remaining useful life would be changed, and the remaining carrying amount of the asset would be amortized prospectively over that revised remaining useful life.

Off-Balance Sheet Arrangements

As of March 31, 2022, we had no off-balance sheet arrangements.

New Accounting Pronouncements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis